If you are a grandparent wishing to provide an asset for your grandchildren without compromising your own financial security you may want to consider an estate planning application known as cascading life insurance.

How does the Cascading Life Insurance Strategy work?

• The grandparent would purchase an insurance policy on his or her grandchild and funds the policy to create significant cash value;

• The grandparent would own the policy and name their adult child as contingent owner and primary beneficiary;

• The cost of life insurance is lowest at younger ages, allowing

the grandparent to establish a plan that allows the cash value in the policy to grow tax deferred;

• When the grandparent dies his or her adult child becomes the owner of the policy.

What are the benefits of the Cascading Life Insurance Strategy?

• Tax deferred or tax free accumulation of wealth;

• Generational transfer of wealth with no income tax consequences;

• Avoids probate fees;

• Protection against claims of creditors;

• Provides a significant legacy;

Access the cash value to pay child’s expenses such as education costs. (Withdrawal of cash value may have tax consequences);

It’s a cost effective way for grandparents to provide a significant legacy.

Case Study

Let’s consider an example of the Cascading Life Insurance Strategy. Grandpa Brian is 65 and has funds put aside for the benefit of his grandson, Ian. He purchases a participating Whole Life policy on Ian for an annual premium of $5,000 for the next 20 years. Brian’s daughter, Kelly is named as contingent owner in the event of Grandpa Brian’s death and beneficiary in the event of Ian’s death.

If Grandpa Brian were to die at age 85, the policy now passes to Kelly with no tax consequence. The cash value of the policy (at current dividend scale) at that time is approximately $ 154,000 and the death benefit of the policy is approximately $800,000.

As a result of Grandpa Brian’s legacy planning, Grandchild Ian, now age 31, has a significant insurance estate that will continue to grow with no further premiums!

Please call me if you think your family would benefit from this strategy or use the social sharing buttons below to share this article with a friend or family member you think might find this information of value.

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About Medy

Medy, also known by her “proper name” Magdalena, is a Certified Financial Planner, Designated Accountant, trained life coach and has over 20 years experience in business and financial analysis. She also coached a leadership course for several years and completed the Coaches Training Institute Co-Active Coaching program. She brings all this together in educating and empowering her clients with creative strategies to help them achieve the life they want at retirement, reach their financial goals with freedom & ease, as well as to keep more of their hard earned money through their lifetime.

Disclaimer

No blog post or online article could ever take the place of a one-on-one discussion with an experienced professional advisor. Even when responding to a reader question, the answers on this blog are intended as general information only. Don't rely on general information as if it were professional advice specific to your particular situation. Use what you read here as a starting point for your research and inquiries.